Microsoft Devices Strategy in Emerging Markets Becomes Clearer

One week the axe falls on Nokia Asha and X lines. Two weeks later it unveils the Nokia 130 for ‘first-time buyers’. Where is Microsoft Devices heading in emerging markets?

It’s easy to get confused about the strategy Microsoft Devices Group is pursuing in emerging markets. Only four weeks ago new Microsoft CEO Satya Nadella told staff in an email that the Seattle giant aimed to "win in the higher price tiers" of the device business as the plug was pulled on its entire Nokia Asha feature phone range, the Nokia X Android smartphone range, two global R&D centres located in emerging markets and 18,000 jobs.

Now Jo Harlow, Microsoft Corporate VP for Phones, says at the launch of the Nokia 130 "As demand in the affordable mobile segment continues to grow, Microsoft remains committed to delivering market-leading mobile innovation at each and every price point. It is estimated that at least 1 billion people in the world still do not have a mobile phone... With handsets like the Nokia 130, we see tremendous potential to deliver the experience of a 'mobile-first' world to people seeking their first device, and we continue to invest in ultra-affordable devices..."

While it is easy to jump to the conclusion that Microsoft’s left hand doesn’t know what the right hand is doing, the launch of the Nokia 130 suggest this is not the case and that the group does have a clear strategy.

Let's look at the background. Making such a late start with Android when the deal with Microsoft was already done it was always hard to see the logic of the Android Nokia X. Attractive as the product looked and felt, it never made sense that Stephen Elop gave the go ahead.

Killing the Nokia Asha range seemed less logical; the Asha brand had started to gain a good reputation in emerging markets, particularly India. But did this translate into sales? With the retail price of smartphones steadily closing in on the US$100 price point the position of mid-market feature phones was increasingly under threat.

Moreover, if you are going to continue to develop and sell devices in this sector is aging Symbian the best Operating System to use now? There are newer open source OSs from Firefox to say nothing of Sailfish from Finnish upstart Jolla. Jolla was set up by the team which developed Nokia’s Symbian replacement MEEGO, after Nokia pulled the plug in 2011 and signed up to Windows Phone instead.

Customers in emerging markets are not fools. They know what a smartphone is and can do for them and many would rather save up for longer than accept an outdated OS that fails to deliver the performance they want.

The middle ground of any market is often the most uncomfortable place to be with pressure from coming both sides. Microsoft appears to have recognised this. As Adrian Baschnonga, Lead Telecommunications Analyst at Ernst & Young puts it "Much of the device industry's focus is on whether growth is sustainable in the market for high-end smartphones as average selling prices fall and competition heats up. However, the ultra-low-end market for phones remains attractive in volume terms.

"Whilst competition is increasingly aggressive in the market for low-end smartphones, there are opportunities for vendors who can leverage their scale and distribution channels in the market for sub-$30 devices. Low wage earners in emerging markets are an under served segment and affordable feature phones remain attractive to swathes of mobile users in the emerging economies of Africa and Asia."

Microsoft estimates 300 million phones a year are sold in emerging markets in this category. Key features of the Nokia 130 are its "outstanding battery life of up to 36 days' standby... a built-in video player, music player with up to 46 hours continuous playback on a single charge and everyday essentials such as a flashlight, FM radio and USB charging". This makes the Nokia 130 an attractive package and should put it ahead of many competing devices.

Whether it will be enough to check the advance of brands like Tecno, which have made big inroads in Africa and elsewhere, remains to be seen.

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